Venezuelans will go to the polls Dec. 3 to decide between President Hugo Chavez and the more moderate opposition candidate, Manuel Rosales. Chavez, whose victory is almost assured, likely will use his next term to press for a national referendum on a constitutional amendment that would allow him to be re-elected indefinitely. The opposition, meanwhile, is using the election to build a solid domestic support base for future challenges to Chavez; it will also try to draw international attention by responding to Chavez's likely victory with post-election protests.

Analysis

Ahead of Venezuela's Dec. 3 presidential election, political tensions in the country have skyrocketed. Hundreds of thousands of Venezuelans reportedly attended the Nov. 25 marches that closed the campaigns of Venezuelan President Hugo Chavez and opposition candidate Manuel Rosales. Most polls show Chavez leading by a wide margin; support for the opposition in Venezuela is difficult to gauge, but most estimates show that the opposition's support base is roughly 35 percent of the population. A commission of EU election observers could make vote manipulation difficult, but Chavez controls the government and the National Electoral Council, which he could use to influence the count in his favor. Regardless of the means of victory, Chavez is widely anticipated to win the election.

Chavez's expected victory will embolden him domestically. However, the opposition is well-financed and popular enough to ensure that, no matter the presidential election's outcome, political struggle in Venezuela will not end when the last ballot is counted.

If Chavez does win, this would be his last term in office under the current constitution. However, he has made it clear that he intends to pursue an amendment that would eliminate term limits, allowing him to be re-elected indefinitely. The amendment is planned for 2010 and would be put to a vote in a national referendum. Unless popular opinion shifts wildly, the amendment would likely pass -- or at least the government would say it had passed. Even if the amendment were to somehow fail, Chavez and his party would pick an analogous successor.

Venezuela's opposition movement is using the Dec. 3 election as an opportunity to gain enough momentum to be able to challenge Chavez in future elections. Rosales -- the current governor of Zulia and former governor of Maracaibo -- is a compromise candidate who represents a variety of interests. A popular politician who has never lost a race, Rosales' platform includes enhancing domestic security to deal with Venezuela's skyrocketing crime rate, fair distribution of oil profits to the poor and democratic reforms such as freedom of the press and judicial reform. Rosales' main critique of Chavez is that the jet-setting leader has committed too much of Venezuela's oil wealth to seeking a leadership role in the international community and too little to fulfilling the socialist goal of helping Venezuela's poor. Rosales also contends that the Chavez regime has corrupted the government and poses a challenge to democracy in Venezuela.

Rosales' supporters include many from the middle and upper classes, along with those who led a short-lived attempt to take control of the presidential palace in 2002. The United States was widely thought to be involved in that coup attempt, which was thwarted by Chavez supporters. After the attempt, the opposition attacked Chavez, launching a recall referendum and strikes. Both tactics failed; Chavez was overwhelmingly re-elected in the referendum, and the strikes prompted the government to take over the unions and replace their leaders. However, the Venezuelan opposition still receives funds from U.S. organizations such as the National Endowment for Democracy via democracy promotion programs in Venezuela -- most prominently from groups such as Sumate and the International Republican Institute, which Chavez's regime has accused of trying to undermine the government.

The opposition is so convinced that Chavez will win on Dec. 3 that it has already planned a post-election protest. Rafael Poleo, director of the Venezuelan newspaper El Nuevo Pais and a prominent opposition member, called on the Venezuelan people and military personnel to protest Dec. 4. Poleo advocated another "Orange Revolution" against the government -- a plea for peaceful but concerted resistance. A drawn-out sit-in protest -- like that of defeated Mexican presidential candidate Andres Manuel Lopez Obrador and his followers -- is less likely than a short-term demonstration, given that such a protest would require significant international and domestic financial support. Though the opposition is relatively well-funded, it cannot compete with the government's purse. Additionally, Venezuelan police are more likely to use force than their Mexican counterparts and would be unlikely to tolerate drawn-out protests.

With high tensions among protesters, police and Chavez supporters, any sit-in would also be more violent than those held recently in Mexico. The opposition could likely easily promote clashes between Chavez supporters and Rosales supporters in order to create chaos in Caracas -- similar to the political, media and physical conflicts that followed the 2002 coup attempt. However, this time Chavez has firm control over the military, and Poleo's mostly rhetorical appeals to the military elite are not likely to loosen Chavez's grip. If Chavez supporters and opposition supporters clash, the military might intervene. The pro-opposition private media would take this opportunity to paint Chavez as a dictator and a monster, and the pro-Chavez state-run media would respond in kind. Chavez is prepared for a media onslaught and has threatened to shut down any television station that broadcasts calls for unrest.

In the long term, a Chavez victory on Dec. 3 will sideline the opposition. The leaders of the movement recognize that Chavez is in complete control of the government and have set their sights accordingly. During the course of this campaign, the opposition has managed to unify around a single candidate -- something it has never before been able to accomplish -- and is planning a reaction to Chavez's likely win with a pragmatic eye toward long-term goals: attracting international attention and building a solid base for future challenges to Chavez's government.

Stratfor is regurgitating the pap that the government has fed visiting reporters. I doubt that Stratfor has a single man on the streets here to verify for himself what is really happening here. If he did, he would not spout such nonsense.

This weekend we had the two closing events. The crowd estimates were around 935,000 for Rosales and 230,000 for Chavez. The second part of the story is that the government blocked access to Caracas on Saturday to reduce the opposition crowd but Caracas, at 6 million, has enough people to fill the alloted space and some extra overflow spaces. I personally made some rough crowd estimates. The distance from Plaza Venezuela to Puente Veracruz, where Rosales gave his speech, is approximately 3.5 KM and the eight lane highway is approximatelly 30 meters wide (You can get these figures from the Google Satelite maps). We are talking about 100,000 square meters with a crowd density anywhere from 3 to 6 people per meter. This main venue can hold 300 to 600 thousand people. But the overflow crowd filled parallel streets and side streets.

The other side of the coin is that the government used 2,300 busses to bring people from all over the country to their "spontaneous" meeting. Government employees were forced to attend and had to be present at two roll calls.

Rosales did not give out T-shirts of flags, oppo demonstrators had to bring their own. One oppo person whose wife works for the government attended both rallies so we have a trusted witness to tell us about the differences.

A curious piece of information surfaced recently. The OAS admitted that they had accepted the Carter Center's recommendation to vouch for the recall referendum to avoid a blood bath in Venezuela. Only a coward like Jimmy Carter could and would propose an infamy like that. It is also true that during the Recall Referendum the opposition was caught flat footed by the electoral fraud. There was no leadership. I remember asking my neighbor on several occasions if an opposition leader would ever appear. For the longest time it appeared most unlikely. The old main-line politicos were all discredited and the "new" ones trying to fill the void simply did not have the right stuff. The talks about an opposition primary led nowhere and reinforced the impression that the opposition was quite clueless. I think this worked in our favor in the long run because Chavez took his eyes off the ball convinced that he was fighting a paper tiger. In the meanwhile, Rosales, a seasoned politician, Governor of the Zulia State, the state that Chavez never managed to win, was biding his time. Rosales had announced his candidacy for the primary but no one gave him much of a chance. When the primary fell through, the various opposition groups huddled to select a coalition leader. In time, every opposition factor agreed to back Rosales.

Rosales has managed to lead a very effective campaign. On the one hand he said he would stop the excesses that Chavez was perpetrating while on the other he was promising that not a single public official (read Chavista) would be fired. Instead of promising to dismantle the Missions, he promised to improve them to the point where they would actually work as planned. Instead of giving oil money to foreign countries he would give it directly to the people via a debit card, Mi Negra. He uses a very powerful campaign slogan: "Atrevete!" (Dare). Dare to vote. Dare to oust Chavez. Dare to build a better future for your family. Rosales campaigned on foot, village by village, kissing babies and pressing the flesh. This long standing tradition has been abandoned in recent memory. Chavez is accused of campaigning like a Carnival Queen on a Carnival float. He no longer walks among the crowds like he once dared. There is another fact to consider. Chavez is not a very bright guy at all but he had one of the wiliest advisors a tyrant could every hope to have. In the beginning Chavez had some very talented Venezuelan godfathers and advisers. During the eight years he has been in power, he has alienated most of them and they have left him. Now Chavez is surrounded by uneducated yes men. That would not be of major consequence if his primary advisor were able to function but Fidel Castro is on his way to hell. I'm convinced that Cuban revolutionaries at this time are more worried about their own future than about Chavez. Anyone present on the local scene would easily have perceived Chavez's flip-flops in the last few months. For a couple of weeks he was an all loving father who traded in his firebrand red shirt for a blue one. Until the day the Minister of Energy and president of PDVSA, the local state oil company, declared (captured on videotape) that PDVSA was "Roja rojita" as red as the revolution and that any state employee who did not back Chavez would be fired "a carajazo limpio." This is Venezuelan slang for beating the sh*t out of you. Chavez decided to back his minister, he put on his red shirt again and declared that the military too was "Roja rojita." Only foreign journalists who go from the airplane to the Ministry of (Dis)Information and straight back home again, can miss what is so obvious to those of us who live here.

All the above would be of little consequence if the whole country were not prepared to fight off a pre-announced government fraud on election day. To the best of my knowledge the opposition has set up plans to defeat the fraud. Instead of transmitting the votes from the voting machines to the CNE, the votes will be counted manually at each polling station. This will give the opposition as much information as the electoral authorities will have.

There is one remaining unknown, at least for me: What side will the military take? I see only two possible outcomes, a win by Rosales or a military dictatorship.

The US markets will be watching the situation in Venezuela today after Venezuelan President Hugo Chavez said late yesterday he plans to nationalize major utility and oil facilities and take complete control of the country by ruling through executive order. Venezuela is a big supplier of oil to the US. The Venezuelan government has several joint ventures with major oil companies that may be nationalized from partners such as Exxon Mobil, Chevron, Total SA, CononcoPhillips, BP and Statoil. Venezuela's currency yesterday plunged 17% and has now fallen by more than 50% in the past 6 months. Chavez said he plans to mold the Venezuelan system along socialist lines.=============NY Times

CARACAS, Venezuela, Jan. 8 — President Hugo Chávez signaled a vigorous new effort to assert greater control over Venezuela’s economy on Monday by announcing plans to nationalize companies in the telecommunications and electricity industries.

Mr. Chávez, who will be sworn in Wednesday to another six-year term, announced his plans at the swearing-in of his new cabinet to a cheering crowd of supporters, sending a chilling message to foreign investors.

American corporations, including Verizon Communications, have large stakes in Venezuela’s largest telecommunications company, CANTV, and its biggest publicly traded electricity company, Electricidad de Caracas.

“Let it be nationalized,” Mr. Chávez said of CANTV. “All that was privatized, let it be nationalized.”

Financial markets appeared to be caught off-guard by Mr. Chávez’s announcement, as speculators reacted with a sell-off of assets that would be affected by the decision. Shares in CANTV plunged 14 percent in New York trading. Venezuela’s currency, the bolívar, fell as much as 20 percent in black market trading here on Monday, traders said.

The announcement was the latest in a series of bold steps Mr. Chávez has taken since his re-election in December to consolidate his power and move Venezuela toward what he calls a socialist revolution. Mr. Chávez said he would also seek a “revolutionary enabling law” from Congress that would allow him to approve bills by decree, as well as a measure stripping the central bank of its autonomy.

“While this is a break with the past, it is consistent with Chávez’s drive to concentrate ever greater power in his hands and the hands of his government,” said Robert Bottome, editor and publisher of Veneconomía, a business newsletter.

Last month, Mr. Chávez announced plans to meld the broad coalition of parties that support him into a single socialist party, raising concerns that he was following in the footsteps of Fidel Castro.

On Monday, in addition to the telecommunications and electricity nationalizations, Mr. Chávez also appeared to signal that he wanted control over four multibillion-dollar oil projects in the Orinoco River basin, which he said should become “state property.”

It was not clear what Mr. Chávez meant, however, since Venezuela’s government already has stakes in those ventures together with some of the world’s largest private oil companies, including Exxon Mobil, Chevron, BP and ConocoPhillips.

Venezuela, which has the largest conventional oil reserves outside the Middle East, has already increased its control over numerous oil production ventures in the past year. The largest consumer of Venezuelan oil, of course, remains the United States, despite efforts by Mr. Chávez to export larger quantities of oil to China and other Asian markets.

Details were vague as to how any of the nationalization plans would play out. For instance, Mr. Chávez omitted from his remarks whether Venezuela would compensate foreign investors for their holdings or expropriate them outright. He has already clashed with investors over small-scale takeovers of farms and even a tomato-processing plant owned by H. J. Heinz, but his government has negotiated settlements with owners in those cases.

The nationalizations would, at least for Venezuela, reverse a trend that got under way in Latin America in the 1990s, when governments throughout the region sold many of their assets, particularly state telephone companies, to private investors. Those deals, together with the auction of licenses to provide wireless phone services, led to a sharp increase in the usage of such services among poorer Venezuelans.

They would also be a significant shift of Mr. Chávez’s economic policies since he became president in 1999. Though Mr. Chávez steadily adopted more strident rhetoric, he let most of Venezuela’s private companies operate unfettered as long they did not actively engage in politics.

But with his re-election in December, Mr. Chávez seems determined to use the momentum — and margin — of his victory to solidify his power and deepen his socialist policies in ways that are increasingly unnerving his opponents.

Supporters of Mr. Chávez already control every institution in the federal government, including Congress and the Supreme Court, so it was unclear what hindrances Mr. Chávez was attempting to overcome by seeking expanded powers. ----------

Mr. Chávez is also going forward with a plan to effectively take RCTV, a television station that persistently criticizes his government, off the air in May by not renewing its broadcast license. The move has drawn fierce criticism both here and abroad, with critics claiming it will restrict freedom of expression.

On Monday, Mr. Chávez described one of the most prominent critics of the decision, José Miguel Insulza, the general secretary of the Organization of American States, in a vulgar term that loosely translates as “idiot.” Mr. Chávez also called on Mr. Insulza to resign.

Flush with more than $50 billion in revenue from oil exports, Mr. Chávez is also retooling Venezuela’s economy to focus on what his economic theorists describe as “endogenous development” that prioritizes the domestic production of agricultural goods and industrial products from worker-owned cooperatives.

Venezuela has undergone a nationalization push before, when the populist government of Carlos Andrés Pérez took control of companies in various sectors, including the oil industry, in the 1970s. The economy, however, suffered from poor growth and inefficient services after oil prices crashed in the 1980s, leading subsequent administrations to privatize state companies and open the oil industry to foreign investment.

American companies reacted cautiously to Mr. Chávez’s comments on Monday. “Verizon has of course been carefully monitoring the news reports on President Chávez’s comments today,” said Eric Rabe, a spokesman for Verizon, which has had a large stake in CANTV since the early 1990s. “We are not aware of the details of the government’s plan and therefore cannot comment at this time.”

While Mr. Chávez referred specifically to the telephone company CANTV, his nationalization plans for the electricity sector remained unclear. The AES Corporation of Arlington, Va., controls Electricidad de Caracas, but did not acquire the company through a privatization auction. Robin Pence, a spokeswoman for AES, declined to comment.

CMS Energy of Jackson, Mich., controls an electricity utility that provides power to Margarita Island that it bought from the Venezuelan government in the 1990s. Jeffrey Holyfield, a spokesman for CMS, said the company had a “good relationship” with Mr. Chávez’s government but was awaiting more details about its plan before it could comment.

Venezuela Stocks, Bonds Sink on Chavez's Nationalization Plans2007-01-09 15:31 (New York)>>By Guillermo Parra-Bernal and Alex Kennedy Jan. 9 (Bloomberg) -- Venezuelan stocks had their biggest dropon record and bonds tumbled after President Hugo Chavez pledged tonationalize the country's largest phone company and utilities. Shares of Caracas-based telephone company CA NacionalTelefonos de Venezuela, or Cantv, plunged 27 percent in U.S.trading to $12.25. The local shares, which account for almost afifth of the Caracas Stock Exchange Index, didn't trade in Caracasuntil about 15 minutes before the close of trading, then fell 30percent, the biggest drop ever. Trading of Electricidad de Caracas,the nation's largest private power company, was halted in themorning after the shares slid 20 percent. Chavez's threat yesterday to take control of ``everything thatwas privatized'' went beyond what investors had anticipated,sending the stock exchange index down 19 percent. Foreign companieswith operations in Venezuela, including power company AES Corp. andsteelmaker Ternium SA, also fell. ``Nobody knows what's going to happen so investors areassuming the worst,'' said Urban Larson, who helps manage $2billion in stocks in emerging markets assets at F&C Investments inBoston. ``Some markets are riskier than others, and it's been clearfor some time that Venezuela is riskier.'' A drop to an 18-month low in the price of oil, Venezuela'sbiggest export, added to declines in the country's stocks andbonds. Crude oil for February delivery fell 43 cents, or 0.8percent, to $55.66 a barrel at 2:09 p.m. in New York. Futurestouched $53.88, the lowest since June 13, 2005.

Yields Rise> The yield on the government's benchmark 9 1/4 percent dollarbonds due in 2027 rose to a one-month high of 7.05 percent. Theyield has jumped 39 basis points, or 0.39 percentage point, sinceJan. 3. The bond price, which moves inversely to the yield, fell0.95 cents on the dollar to 123.7 cents, according to JPMorganChase & Co. The bonds now yield 2.34 percentage points more thansimilar-maturity U.S. Treasuries. The yield on the 6.25 percent so-called Interest and PrincipalProtected bonds, due April 2017, fell to 3.99 percent from 4.02percent yesterday, according to Banco Bilbao Vizcaya Argentaria SA.The price, which moves inversely to the yield, rose to 119, thehighest in three weeks. The TICC. which is dollar-denominated andtraded in the local market, offers currency protection. An index of Venezuelan ADRs fell 35 percent. U.S.-tradedshares of Ternium, a Luxembourg-based steelmaker with mills inArgentina, Mexico and Venezuela, fell $1.07, or 3.9 percent, to$26.38. Ternium is controlled by Argentina's Techint Group. Shares of Canada's Crystallex International Corp., which isdeveloping Venezuela's biggest bullion deposit, fell 34 cents, or8.4 percent, to C$3.69, after falling 9.4 percent yesterday.Arlington, Virginia-based AES Corp., which owns an 85 percent stakein Electricidad, fell 90 cents, or 4.3 percent, to $20.12, as of2:33 p.m. in New York.> Suspended> Trading on shares of both Cantv and Electricidad, known asEDC, will be suspended for the next two days, Fernando de Candia,the nation's stock exchange regulator, said in a statament. Thedrop in the index is ``temporary,'' he said. President George W. Bush's administration urged Venezuela tocompensate U.S. companies that would be affected by Chavez's planto transfer the country's utilities to state ownership, White Housespokesman Gordon Johndroe said. ``Political risk clearly reached a new peak after all this,''said Claudia Calich, who manages $900 million in emerging marketdebt for Invesco Inc. in New York. ``Investors will be veryattentive to upcoming announcements.'' The plunge in the index, the biggest since Bloomberg startedtracking it at the end of 1993, will be temporary, Ex-PresidentCarlos Andres Perez sold Cantv to a group of private investors ledby GTE Corp. in 1991, a year before Chavez became a national figureby trying to overthrow Perez.

Political Ceremony

Chavez, speaking from Caracas as he swore in new cabinetmembers, pledged to exert greater control over the oil industry.Chavez, a 52-year-old former lieutenant colonel who has clashedwith U.S. President Bush, won re-election to a new six-year termlast month. Chavez's plans may result in further declines in investment inan economy that, after growing 10 percent each of the past threeyears on the back of rising oil prices, risks overheating. Since1999, manufacturers have trimmed spending on new plant andequipment to the point that non-government investment equals nomore than 4 percent of gross domestic product, one of the lowest inthe region. The plan also risks making the economy of Venezuela moredependent on oil. The Chavez administration has benefited from oilprices that averaged more than $60 a barrel last year, comparedwith about $15 a barrel when he first won office in 1998. ``If Chavez chooses this path then we'll see a flight ofcapital away from bonds and Venezuelan assets in general,'' saidLuis Costa, an emerging market debt strategist at ING Groep NV inLondon. ``Foreign investors will become scared of developments.''

`Strategic'

Chavez yesterday said that ``those sectors that are sostrategic, such as electric power, everything that was privatized,will be nationalized.'' Nationalization would probably be the biggest step towardreversing the legacy of previous governments that privatizedcompanies and opened Venezuelan markets to foreign investors. Itwould add to restrictions in foreign-currency trading Chavez firstimposed in early 2003. Banks endure interest-rate caps in Venezuelaand phone, power rates and rents are also controlled. The perceived risk of owning Venezuela's bonds surged today.Credit-default swaps based on $10 million of the nation's U.S.dollar-denominated bonds jumped 9.7 percent to $169,000 from$154,000 yesterday, according to data compiled by Lehman BrothersInc. An increase in price indicates deterioration in the perceptionof credit quality; a decline suggests improvement.

`Find an Exit'

``Portfolio investors should try to find an exit,'' saidRichard Segal, head of research at Argonaftis Capital Management inLondon. ``Chavez has been trying to do this for a long time and hefelt that the latest presidential victory for him gives him thatmandate.'' Venezuela, a founding member of OPEC, is the world's fifth-largest oil exporter. The energy ministry said yesterday that four joint venturesmay be nationalized; the government has been negotiating to givemajority control of them to state-run Petroleos de Venezuela SAwhile leaving a minority stake with foreign owners including ExxonMobil Corp., Chevron Corp., Total SA, ConocoPhillips, BP Plc andStatoil ASA. ``We are in constant contact with Venezuelan authorities andthe word `nationalization' is not a word we've been confronted withyet,'' said Peter Mellbye, Statoil's head of internationaloperations, in an interview today. Total spokesman Paul Floren andBP spokesman David Nicholas declined to comment on Chavez'sstatements.

No Autonomy

Chavez also said he will seek to strip the central bank ofindependence from the government. ``The central bank shouldn't beautonomous,'' Chavez said. ``That is one of the biggest mistakes ofthe constitution.'' Speaking to reporters today in Caracas, outgoing central bankDirector Domingo Maza criticized Chavez' decision. Maza's term endsthis month. ``The central bank must be autonomous. Otherwise, the peoplewill lose confidence in the currency,'' Maza said in an interviewon Globovision television station. The currency, which the government sets at an exchange rate of2,150 bolivars per dollar, was bought today around 4,000 per dollarin unregulated trading, said Nelson Corrie, a trader withInteracciones Casa de Bolsa CA in Caracas. The government, undercurrent restrictions, is the only allowed to buy and sell foreigncurrency. The possible nationalization of Cantv may deprive Venezuelansof a means to withdraw money from the country. Since 2003,investors realized they could legally acquire dollars by buying thecompany's local shares, converting them into ADRs and selling themabroad.

--With reporting by Aaron Pan, James Isola, Steve Voss and AgnesLovasz in London, Bunny Nooryani in Oslo, Tom Cahill in Paris,Daniel Helft in Buenos Aires and Alexander Ragir in New York.Editor: Papadopoulos (sqk)

Story illustration: To chart CPI in Venezuela, see {VNVPINMO<Index> GP <GO>}. For a breakdown of CPI data: {<ALLX VNVP<GO>}

To contact the reporters on this story:Guillermo Parra-Bernal in Caracas at +58-212-277-3737 or atgparra@bloomberg.net

To contact the editor responsible for this story:Andrew J. Barden at +55-11-3048-4641 or barden@bloomberg.net.

I'm back from the market. There was plenty of meat on the shelves! I did not find the cut I wanted (falda, brisket?) so I bought chicken breasts instead.

It seems the cattle decided they didn't like Colombia and they walked right back to Venezuela. Being in a gracious mood, they decided to save the ranchers some trouble and they walked straight to the slaughter houses instead of to their haciendas. FedEx was standing by and the meat was flown overnight express to the butcher shops countrywide.

To get the process rolling most likely the distribution chain gave a few well placed government officials and military commanders a proper sized mordida.

The day after the shortage was announced the powers that be came to some kind of accord and the meat appeared automagically in the shops. Since this is not a newsworthy event, it does not get many headlines, just back to business as usual. This is nothing new in Venezuela. Under Chavez it might be more strident. A government official uses his discretionary power to disrupt some supply chain. The papers raise up the hue and cry. Business pays of the bribe and it's back to business as usual. So, what else is new?

Here is the real deal: rich people have the funds to stock up a larder for a month or three. Some people actually have industrial sized freezers at home. When you go shopping you stock up on whatever happens to be available. When a shortage develops, you use the stuff in the larder. In a normal country this would be considered an expensive luxury but not in Venezuela. With inflation running at 34% since 1984 the faster you can get rid of cash, the better off you are. The larder helps fight inflation!

Of course, this is considered hoarding by the government and only the nasty oligarchy does it. The poor people in the barrios don't hoard. Of course not, they are living day to day and can't afford to do anything that is economically useful, they have to bear the slings and arrows of outrageous government policies.

Middle-class Venezuelans are queuing to leave the country amid fears that its president, Hugo Chavez, is laying the ground for a dictatorship.

Opponents of his "20th century socialism" are so desperate to escape that they have resorted to learning new languages and tracking down long lost European relatives in the hope of securing a visa.

At the US Embassy, visa enquiries have almost doubled in recent weeks, from 400 to about 800 a day. "There are normal spikes toward Christmas or another major holiday, but this increase doesn't fall into that category," said embassy spokesman Brian Penn.

The British embassy has seen a similar rise in numbers. "It has been increasing for some time, but what's different now is the tone of desperation," said a British spokesman.

A website for would-be emigrants - mequieroir.com (I want to leave.com) - reports that since Mr Chavez's December 3 election victory, and his announcement last month that he would nationalise the telecommunications and electricity industries, the number of daily visits it receives has soared from 20,000 to 60,000.advertisement

"You're getting more families, who are worried about their children's futures," said Esther Bermudez, who runs the site.

At the Italian Culture Institute, registration for Italian language classes is up 20 per cent year on year. Hundreds of thousands of Venezuelans have Spanish, Italian or Portuguese relatives who emigrated there after the Second World War.

Ernestina Hidalgo, 40, whose husband is a Spanish citizen, said that she was hoping that their two teenage children would also be granted Spanish citizenship. She said an "enabling law", passed by the National Assembly 10 days ago, granting Mr Chavez 18 months of rule by decree, was the final straw.

"Chavez doesn't accept political dissidence," said Mrs Hidalgo. "Why do they need an enabling law if they already have an absolute majority in the National Assembly?"

The enabling law gives Mr Chavez free rein over 11 strategic policy areas, including defence and energy. In January, Mr Chavez said that he intended to nationalise the telecommunications and electricity industries, as well as take a larger share of oil operations in the Orinoco River belt, which produces 600 billion barrels per day.

He has also said he will not renew the broadcasting license of RCTV, an opposition TV channel.

Outside the Spanish consulate last week, Dayana Ramirez, 20, whose paternal grandmother is Spanish, queued with her boyfriend Jose Antonio Barreiro, 24, as he waited to pick up his passport. She wants to acquire Spanish citizenship and the couple hopes to emigrate to Galicia in northwestern Spain.

"Older people leave because they are concerned about the future of their families," said Mr Barreiro, a graphic designer, "and younger people like us leave because there is no future."

As the world's fifth largest oil exporter, Venezuela has benefited from record oil prices, boosting the scope for Mr Chavez's social spending. Among his poor supporters, he is seen as a politician who acts on his rhetoric.

The National Assembly ceded its legislative function to Mr Chavez in a special session in the Plaza Bolivar in Caracas. In a show of the political participation that Chavez champions, government supporters gathered and raised their hands along with legislators when the law was voted on. "Approved unanimously, including the vote of the people," declared Assembly president, Cilia Flores.

But critics argue that Chavez is only interested in keeping power, not in sharing it.=============

CARACAS, Venezuela, Feb. 16 — Faced with an accelerating inflation rate and shortages of basic foods like beef, chicken and milk, President Hugo Chávez has threatened to jail grocery store owners and nationalize their businesses if they violate the country’s expanding price controls.

Food producers and economists say the measures announced late Thursday night, which include removing three zeroes from the denomination of Venezuela’s currency, are likely to backfire and generate even more acute shortages and higher prices for consumers. Inflation climbed to an annual rate of 18.4 percent a year in January, the highest in Latin America and far above the official target of 10 to 12 percent.

Mr. Chávez, whose leftist populism remains highly popular among Venezuela’s poor and working classes, seemed unfazed by criticism of his policies. Appearing live on national television, he called for the creation of “committees of social control,” essentially groups of his political supporters whose purpose would be to report on farmers, ranchers, supermarket owners and street vendors who circumvent the state’s effort to control food prices.

“It is surreal that we’ve arrived at a point where we are in danger of squandering a major oil boom,” said José Guerra, a former chief of economic research at Venezuela’s central bank, who left Mr. Chavez’s government in 2004. “If the government insists on sticking to policies that are clearly failing, we may be headed down the road of Zimbabwe.”

For now, Venezuela remains far from any nightmarish economic meltdown. The country, which has the largest conventional oil reserves outside the Middle East, is still enjoying a revenue windfall from historically high oil prices, resulting in a surge in consumer spending and lavish government financing for an array of social welfare and infrastructure programs. Dollar reserves at the central bank total more than $35 billion.

The economy grew by more than 10 percent last year, helping Mr. Chávez glide to a re-election victory in December with 63 percent of the vote. Yet economists who have worked with Mr. Chávez’s government say that soaring public spending is overheating Venezuela’s economy, generating imbalances in the distribution of products from sugar to basic construction materials like wallboard.

Public spending grew last year by more than 50 percent and has more than doubled since the start of 2004, as Mr. Chávez has channeled oil revenues into social programs and projects like bridges, highways, trains, subways, museums and, in a departure for a country where baseball reigns supreme, soccer stadiums.

In an indicator of concern with Mr. Chávez’s economic policies, which included nationalizing companies in the telephone and electricity industries, foreign direct investment was negative in the first nine months of 2006. The last year Venezuela had a net investment outflow was in 1986.

Shortages of basic foods have been sporadic since the government strengthened price controls in 2003 after a debilitating strike by oil workers. But in recent weeks, the scarcity of items like meat and chicken has led to a panicked reaction by federal authorities as they try to understand how such shortages could develop in a seemingly flourishing economy.

Entering a supermarket here is a bizarre experience. Shelves are fully stocked with Scotch whiskey, Argentine wines and imported cheeses like brie and Camembert, but basic staples like black beans and desirable cuts of beef like sirloin are often absent. Customers, even those in the government’s own Mercal chain of subsidized grocery stores, are left with choices like pork neck bones, rabbit and unusual cuts of lamb.

With shoppers limited to just two large packages of sugar, a black market in sugar has developed among street vendors in parts of Caracas. “This country is going to turn into Cuba, or Chávez will have to give in,” said Cándida de Gómez, 54, a shopper at a private supermarket in Los Palos Grandes, a district in the capital.

José Vielma Mora, the chief of Seniat, the government’s tax agency, oversaw a raid this month on a warehouse here where officials seized about 165 tons of sugar. Mr. Vielma said the raid exposed hoarding by vendors who were unwilling to sell the sugar at official prices. He and other officials in Mr. Chávez’s government have repeatedly blamed the shortages on producers, intermediaries and grocers.----------Page 2 of 2)

Those in the food industry argue that the price controls prevented them from making a profit after inflation rose and the value of Venezuela’s currency plunged in black market trading in recent weeks. The bolívar, the country’s currency, fell more than 30 percent to about 4,400 to the dollar in unofficial trading following Mr. Chávez’s nationalization of Venezuela’s main telephone company, CANTV, and its largest electric utility, Electricidad de Caracas.

Fears that more private companies could be nationalized have put further pressure on the currency as rich Venezuelans try to take money out of the country. Concern over capital flight has made the government jittery, with vague threats issued to newspapers that publish unofficial currency rates (officially the bolívar is quoted at about 2,150 to the dollar).

Regardless of efforts to stop illicit currency trading, the weaker bolívar has made imported food, fertilizers and agricultural equipment more expensive. Venezuela, despite boasting some of South America’s most fertile farmland, still imports more than half its food, largely from Argentina, Brazil, Colombia and the United States.

Supermarket owners expressed relief when the government this week cut value-added taxes on retail food sales and raised the prices on more than 100 staples in an effort to alleviate the shortages. The announcement included an average 32 percent increase in beef prices and a 45 percent increase in chicken prices.

Following Mr. Chávez’s nationalization threat, supermarket owners were cautious in their public statements. “As long as we are complying with the regulations, I don’t believe there will be any type of reprisal,” said Luis Rodríguez, executive director of the National Supermarket Association.

But many were clearly torn, afraid that their stores could be seized if they complained, but at a loss as to how to continue operating. “If I don’t sell at the regulated price they’ll fine me, and if I don’t sell meat I’ll be out of business,” said a butcher shop owner here.

During his television broadcast, Mr. Chávez said his measures would be laid out in a decree, a power that his rubber-stamp legislature just bestowed upon him. He acknowledged that removing taxes on food sales would deprive the government of more than $3 billion in revenues, higher than the military budget, but he said tax increases on luxuries like beach homes and yachts would make up for part of the shortfall.

Mr. Chávez also said he would raise subsidies for state-owned grocery stores. Economists say such subsidies, together with hefty loans to farmers, have allowed the price controls to function relatively well until recent weeks.

But recent expropriations of farms and ranches, part of Mr. Chávez’s effort to empower state-financed cooperatives, have also weighed on domestic food production as the new managers retool operations. So has the flood of petrodollars into the economy, easing food imports and making some domestic producers uncompetitive, an affliction common to oil economies.

“There seems to be a basic misunderstanding in Chávez’s government of what is driving scarcity and inflation,” said Francisco Rodríguez, a former chief economist at Venezuela’s National Assembly who teaches at Wesleyan University.

“There are competent people in the government who know that Chávez needs to lower spending if he wants to defeat these problems,” Mr. Rodríguez said. “But there are few people in positions of power who are willing to risk telling him what he needs to hear.”

Tensions between Costa Rica and Venezuela escalated following an announcement Feb. 21 by Venezuelan President Hugo Chavez that a Venezuelan-owned aluminum plant in Costa Rica will be closed. Though Chavez maintains that the motives behind the move are not political, his announcement follows recent criticism of Venezuela by Costa Rican President Oscar Arias. Chavez has successfully relied on oil diplomacy to gain alliances, but closure of the plant indicates he also has punitive measures planned for his critics.

Analysis

The announced closure of an aluminum plant in Costa Rica has ignited a diplomatic row between Costa Rica and Venezuela. The plant, located in Puntarenas province, is owned by Venezuelan state company Alunasa, which was a Costa Rican enterprise acquired by Venezuela in 1990. The plant produces 9,000 tons of aluminum each year and exports to many countries, including the United States, Mexico and Canada.

Venezuelan President Hugo Chavez confirmed late Feb. 21 that he is calling for the closure of the plant for "geopolitical, technical and economic" reasons, strongly denying that the move is in retaliation against Costa Rica over diplomatic tensions between the nations (no date was given for the closure). Chavez contends that the plant will be more economically profitable in a new location. Though this location has not been specified, the plant likely will be re-established in a state allied with Chavez, such as Ecuador or Bolivia.

Costa Rica has rejected Chavez's rationale; a government minister noted that moving the factory will cost at least $25 million and result in two years of downtime before operations can resume at the present level. In addition, given the plant's 25-year history in Costa Rica, the closure spells serious economic trouble for Puntarenas province. According to government estimates, at least 20 percent of the local population will be impacted by the closure.

But economic reasons are not Chavez's true motivation. Instead, he is angered by Costa Rican President Oscar Arias' recent criticism of Venezuela, in which Arias called Chavez's regime a "democratic dictatorship" and criticized Chavez's newly endowed special powers under the Enabling Law. Chavez responded publicly to Arias' statements, accusing the Central American leader of pandering for U.S. favor.

Chavez's idea of diplomacy revolves around oil, as is shown by his world tours and bilateral accords in 2006. Costa Rica was on his list of allies under the Petrocaribe Accord, in which Venezuela agreed to provide affordable crude to several Caribbean and Central American countries regardless of market fluctuations.

Chavez sees Costa Rica's public criticism of Venezuela as a de facto violation of his oil-induced friendship. Costa Rica is hardly the first nation to be critical of Venezuela. Brazil, Argentina and Mexico all have challenged Chavez's economic and political agendas. Faced with these regional giants, however, Chavez has been relatively powerless. He is taking punitive action against Costa Rica -- a geopolitical adversary too weak to challenge him -- simply because he can.

The closure of the Costa Rican plant is one of Chavez's first forays into punitive diplomacy, and it is not likely to be his last. The move could indicate a shift in his method of dealing with dissent -- but only if the dissenter is less powerful than he. The smaller nations of the Caribbean and Central America -- almost all of which fall under the Petrocaribe deal -- are in this vulnerable category.

Venezuela Spending on Arms Soars to World’s Top Ranks NY Times By SIMON ROMEROPublished: February 25, 2007

CARACAS, Venezuela, Feb. 24 — Venezuela’s arms spending has climbed to more than $4 billion in the past two years, transforming the nation into Latin America’s largest weapons buyer and placing it ahead of other major purchasers in international arms markets like Pakistan and Iran.

Venezuelan military and government officials here say the arms acquisitions, which include dozens of fighter jets and attack helicopters and 100,000 Kalashnikov assault rifles, are needed to circumvent a ban by the United States on sales of American weapons to the country.

They also argue that Venezuela must strengthen its defenses to counter potential military aggression from the United States.

“The United States has tried to paralyze our air power,” Gen. Alberto Muller Rojas, a member of President Hugo Chávez’s general staff, said in an interview, citing a recent effort by the Bush administration to prevent Venezuela from acquiring replacement parts for American F-16s bought in the 1980s. “We are feeling threatened and like any sovereign nation we are taking steps to strengthen our territorial defense,” he said.

This retooling of Venezuela’s military strategy, which includes creation of a large civilian reserve force and military assistance to regional allies like Bolivia, has been part of a steadily deteriorating political relationship with the United States.

The Bush administration has repeatedly denied that it has any plans to attack Venezuela, one of the largest sources of oil for the United States. But distrust of such statements persists here after the administration tacitly supported a coup that briefly removed Mr. Chávez from office in 2002.

Venezuela’s escalation of arms spending, up 12.5 percent in 2006, has brought harsh criticism from the Bush administration, which says the buildup is a potentially destabilizing problem in South America and is far more than what would be needed for domestic defense alone.

The spending has also touched off a fierce debate domestically about whether the country needs to be spending billions of dollars on imported weapons when poverty and a surging homicide rate remain glaring problems. Meanwhile, concern has increased among Venezuela’s neighbors that its arms purchases could upend regional power balances or lead to a new illicit trade in arms across Venezuela’s porous borders.

José Sarney, the former Brazilian president and a leading senator, caused a stir this week when he was quoted in the newspaper O Globo as describing Venezuela’s form of government as “military populism” and “a return to the 1950s,” when Venezuela was governed by the army strongman Marcos Pérez Jiménez.

“Venezuela is buying arms that are not a threat to the United States but which unbalance forces within the continent,” Mr. Sarney said. “We cannot let Venezuela become a military power.”

Still, officials in the administration of President Luiz Inácio Lula da Silva of Brazil have been hesitant to publicly criticize Venezuela’s arms purchases.

The issue remains delicate after the Brazilian company Embraer lost a deal to sell military aircraft to Venezuela because the planes included American technology.

After turning unsuccessfully to Brazil and Spain for military aircraft, Venezuela has become one of the largest customers of Russia’s arms industry.

Since 2005, Venezuela has signed contracts with Russia for 24 Sukhoi fighter jets, 50 transport and attack helicopters, and 100,000 assault rifles. Venezuela also has plans to open Latin America’s first Kalashnikov factory, to produce the Russian-designed rifles in the city of Maracay.

A report in January by the Pentagon’s Defense Intelligence Agency pegged Venezuela’s arms purchases in the past two years at $4.3 billion, ahead of Pakistan’s $3 billion and Iran’s $1.7 billion in that period.

In a statement before the House Intelligence Committee, Lt. Gen. Michael D. Maples, the director of the Defense Intelligence Agency, called attention to Mr. Chávez’s “agenda to neutralize U.S. influence throughout the hemisphere,” contrasting Mr. Chávez with the “reformist left” exemplified by President Michelle Bachelet of Chile.

============

Beyond Russia, Venezuela is also considering a venture with Iran, its closest ally outside Latin America, to build a remotely piloted patrol aircraft. Gen. Raúl Isaías Baduel, the Venezuelan defense minister, recently told reporters that the project to build 20 of the aircraft could be used to bolster border surveillance and combat environmental destruction in Venezuela. Venezuela is also strengthening military ties with Cuba, sending officers and soldiers there for training.

Supporters of the arms buildup contend that under Mr. Chávez, who has been in power for eight years, Venezuela has spent proportionately less on its military in relation to the size of its economy than the United States or than other South American countries like Chile and Colombia.

In 2004, the last year for which comparative data were immediately available and before Venezuela’s arms buildup intensified, overall defense spending by Venezuela, including arms contracts, was about $1.3 billion and accounted for about 1.4 percent of gross domestic product, compared with 4 percent in the United States and 3.8 percent in Colombia, according to the Stockholm International Peace Research Institute, which tracks military spending.

Doubts persist as to how powerful Venezuela’s armed forces have become in a regional context, even as they acquire new weapons. Military experts here say pilots in the air force still need training to start flying their new Russian fighters. And in terms of troop strength, Venezuela’s 34,000-soldier active-duty army still lags behind the armies of Argentina and Brazil, with about 41,400 and 200,000 members respectively, according to GlobalSecurity.org, a Web site that compiles data on military topics.

Pro-Chávez analysts also say the president is less adventurous in relation to military policy outside Venezuela than predecessors like Luis Herrera Campíns, who supported Argentina in the Falklands War in 1982 to detract attention from a decline in oil revenue and climbing inflation.

But critics of the arms purchases say they are being made with little participation from or discussion with the National Assembly, which recently allowed Mr. Chávez to govern by decree for 18 months.

Ricardo Sucre, a political scientist at the Central University of Venezuela, said that the lack of transparency of the weapons contracts had heightened concern that Mr. Chávez could be arming parts of the army, the new civilian reserve and partisans like the Frente Francisco de Miranda, a pro-Chávez political group, that would be loyal to him in the event of fractures within the armed forces.

General Muller Rojas, the president’s military adviser, said concern about the arms purchases was overblown, pointing to reports that Venezuela was considering an acquisition of nine diesel-powered submarines from Russia for about $3 billion.

He said the navy had “aspirations” for more submarines, but that no “concrete plan” for such a large contract had been developed.

“We simply have an interest in maintaining peace and stability,” General Muller Rojas said, describing the Caribbean as a crucial to its military influence. “We have no intent of using the Venezuelan armed forces to repress human rights.”

VENEZUELA: The Venezuelan government seized 16 ranches in Anzoategui, Apure, Aragua, Barinas, Cojedes, Guarico and Portuguesa states, Venezuelan President Hugo Chavez said late March 25. Chavez said the land, comprising about 817,000 acres, will be converted into cattle production and will be managed by cooperatives. Chavez added that the expropriation of unproductive land will continue, and said any resistance to the expropriations will result in a forceful response from the government.

Quoting: "The Venezuelan government seized 16 ranches...comprising about 817,000 acres...any resistance to the expropriations will result in a forceful response from the government."

To me, that's outragious. Taken with the previous story that Chavez passd up Iran and Pakistan as arms purchasers, it foretells danger and trouble ahead. Like Saddam's slaughter of DuJaille or poisoning the Kurds, these takings are an act of force, not an economic policy.

To the media and the public, this looks like a dog takes a nap story. Takings are what they do. How else would you have 'collective property'? Like the politics of envy in the US, it is presented as fairness, populism and helping the poor or the workers. Here is the AP story: http://www.businessweek.com/ap/financialnews/D8O3TR1G0.htm

In my mind it illustrates perfectly the choices we all face. Here it is usually just partial takings from the rich with our proclivity to accept and worsen the 'progressivity' in tax rates. We limit marginal tax rates only based on an efficiency argument - that at some high rate, the productive will not produce and pay more tax. We never seem to acknowlege the moral argument that coveting and taking your neighbor's riches is wrong. Whether it is a dictator taking land by force or a majority of 51% of the people taxing the other 49% at a rate far higher than their own, IMO it completely fails to comply with a central principle of free people called consent of the governed.

"The characteristic feature of the market price is that it tends to equalize supply and demand."

--Ludwig von Mises, "Human Action," 1949

The Venezuelan government will seize control of Radio Caracas Television on Sunday, finally making good on a threat to silence one of the country's most important independent news sources. It is no coincidence that this is happening at a time when Venezuelans are suffering a shortage of key foodstuffs.

Free-speech protections in Venezuela have been steadily eroding for the past eight years, and most other television stations already practice self-censorship. With the expropriation of RCTV, there is only one other independent voice -- Globovision -- left standing. This assault on free speech has even provoked criticism by the Organization of American States, which has been silent about President Hugo Chávez's many other offenses against democracy.

Having built his claim to legitimacy on the spurious assertion that he presides over a democracy, you can bet that Mr. Chávez would not have gone after RCTV unless he deemed control of TV news vital to his survival. It may indeed be. The reason is because the economy has been so mismanaged that a crisis now appears unavoidable. How it will end, in rationing and hunger or hyperinflationary madness, is hard to say. But when the whole thing comes a cropper, the last thing the president will want is TV images of popular protests that could be contagious.

From the earliest days of his presidency, Mr. Chávez made it clear that he intended to vastly expand the state's economic power. In 2000 he started politicizing the state-owned oil company PdVSA and hollowing out its professional engineering and marketing staffs. Shortly thereafter he took to expropriating farms, factories and apartments. When Venezuelan money began to flee, he slapped on capital controls. More recently, he has forced international oil companies to hand over Venezuelan operations and surrender majority control. He has nationalized the largest telephone company and the most important electricity utility. He is now threatening to take over the banks.

As government takings always do, these assaults on property rights have badly damaged output and investment. Yet the harm has been greatly compounded by three other pernicious policies: price controls, profligate government spending and inflation of the national currency, the bolivar.

Here's how Chávez economics "works." As petro-dollars pour into state coffers, the government takes them to the central bank to get new bolivars printed, which are then pumped into the economy through government spending. Mr. Chávez has also been regularly increasing wages. The result is a consumption boom. Under free prices, too many bolivars chasing too few goods would produce inflation that would show up at the supermarket checkout counter. But price controls make that impossible. Instead, serious shortages are emerging.

Free prices are to an economy what microchips are to a computer. They carry information. As Austrian economist Ludwig von Mises explained in his legendary treatise 60 years ago, it is free prices that ensure that supply will meet demand. When Mr. Chávez imposed price controls, he destroyed the price mechanism.

And so it is that the Venezuelan egg is now a delicacy, the chicken an endangered species, toilet paper a luxury and meat an extravagance. White cheese, milk, tuna, sardines, sugar, corn oil, sunflower oil, carbonated drinks, beans, flour and rice are also in short supply.

The reason is simple: Producers have no incentive to bring goods to market if they are forced to sell them at unprofitable prices. Ranchers hold back their animals from slaughter, fisherman don't cast their nets, food processors don't invest in equipment and farmers don't plant. Those who do produce find it makes more sense to take their goods across the border to Colombia or to seek out unregulated (black) markets.

Importers also have little incentive to work these days even though the country needs food from abroad. Some things like wheat are not grown in Venezuela. Other products like milk, sugar and potatoes are imported to supplement local supplies. But the Chávez government has made it difficult to buy a dollar at the official exchange rate of 2,150 bolivars and if an importer has to buy dollars at the market rate of 4,000 bolivars it is impossible to make a profit under price controls. Even imports not subject to price controls can be difficult to find since import permits and licenses, as well as dollars, are hard to come by.

This is putting a crimp in more than just the food supply. According to local press reports, some 40% of the country's air fleet has been affected by delays in getting spare parts and the automotive industry's supply chain is hampered by a lack of access to dollars. Earlier this year hospitals began complaining that the servicing of medical equipment has been delayed because spare parts are not available. Hospitals are also reporting shortages of medicines for diabetics, antibiotics and hypertension drugs. Price controls on construction materials have damaged the reliability of supply.

To stock the state-owned grocery stores called Mercal, the Chávez government goes shopping abroad with dollar reserves. Of course, Mercal shelves are often bare as well. Moreover, some enterprising government employees seemed to have learned something about market economics: The Venezuelan media is reporting that Mercal supplies are turning up for sale just across the Colombian border, where market prices prevail.

Venezuelan policy makers can't be this dumb. The intention is not to feed the country but to destroy the private sector and any political power it might still have. In this environment survival independent of good relations with Mr. Chávez is nearly impossible. In the revolutionary handbook, capitalist producers and importers who buy things from the imperialists will be replaced by socialists living on cooperatives that will feed the country. The only trouble is that that effort is not going well, as José de Cordoba reported on the Journal's front page on Thursday. Lack of knowledge, equipment, incentives and organization have left the co-ops "mostly a bust so far."

To end the shortages all Mr. Chávez would have to do is lift the price controls. But with inflation already running above 20%, he no doubt fears the price jump that would follow. Much safer to seize RCTV and accelerate the consolidation of the military dictatorship. When the crisis comes, the chavistas will be ready.

Venezuelan President Hugo Chavez said June 3 that the student protests following his refusal to renew Radio Caracas Television's (RCTV) contract were instigated by the United States -- and that it is clear the 1999 constitution is too permissive and should be revised. Chavez also suggested that the Bolivarian Alternative for the Americas (ALBA) should form a federation of republics. Though the president is influential enough to get his way on almost any domestic issue, his response to the protests could turn the group of pro-RCTV demonstrators into a more serious opposition movement. Meanwhile, the ALBA proposal is likely to be a nonstarter with Bolivia, and could estrange Ecuador.

Analysis

Venezuelan President Hugo Chavez said during his weekly radio address June 3 that the student protests that followed his refusal to renew the contract of Radio Caracas Television (RCTV) were instigated by the United States -- and that it is clear the 1999 constitution is too permissive of foreign influence on public dissent and should be revised. In the same address, Chavez also suggested that the Bolivarian Alternative for the Americas (ALBA), which is made up of Venezuela, Bolivia, Cuba and Nicaragua, should form a federation of republics.

Though Chavez is strong enough to get his way on almost any domestic issue, his response to the student protests could turn the group of pro-RCTV demonstrators, which originally dealt only with the issue of RCTV, into a more serious opposition movement. Meanwhile, the ALBA proposal is likely to be a nonstarter with Bolivia, and could estrange Ecuador, which is not a member of ALBA but has been considering joining.

As expected, Chavez halted RCTV's public broadcasts May 27 despite large protests. In Stratfor's first discussion of the issue it was suggested that, having failed to save RCTV, opposition groups would drop their campaign, at least for awhile. However, we did not anticipate that Chavez would fan the flames by claiming the students are being funded by the United States' Albert Einstein Institution as part of a U.S. attempt to destabilize the country, much as nongovernmental organizations (NGOs) did during Ukraine's Orange Revolution.

Student protesters are notorious for their ideological immaturity, rowdiness and copious amounts of free time, and they rarely are taken seriously as a political movement. The RCTV protesters are no more powerful than most; however, they likely will resent the accusation that they are acting on behalf of a foreign influence -- particularly the United States. Instead of simply ignoring the students, Chavez has poured salt on a wound that was likely to go away on its own. This could sustain the protesters' anger and turn them into a more serious opposition group. Though the students are unlikely to pose an immediate threat to Chavez, the movement could strengthen opposition to the president's proposed constitutional reforms.

Chavez's comments that the current constitution is too "permissive" carry dire implications for the funding, personnel and activities of NGOs in Venezuela, particularly those with U.S. ties. Chavez's reference to the Orange Revolution, which was spurred by several of the country's NGOs, could indicate a coming crackdown on such organizations in Venezuela.

The president did not provide many details on how he wants ALBA, a regional Chavez fan club that was formed in response to the United States' proposed Free Trade Area of the Americas, to become a federation of republics. The organization will hold a ministerial meeting June 6, so it is possible Chavez will elaborate on his proposal then. The idea is unlikely to please Venezuelans, who already are complaining that Chavez devotes too much attention to international events and not enough to problems at home. It also is unlikely to please residents of other ALBA countries, many of whom are concerned that Chavez has too much influence over their leaders.

Taken together, Chavez's recent announcements could even compel Bolivian President Evo Morales and Ecuadorian President Rafael Correa to further distance themselves from the Venezuelan president. Both Bolivia and Ecuador are in the midst of instituting their own constitutional reforms -- partially inspired by the Venezuelan effort that resulted in the 1999 constitution. Morales is seeking to overcome lowland opposition to his reforms, and Correa is trying to push forward his agenda while reassuring businesses that Ecuador will continue to be a relatively stable environment in which they can turn a profit. The last thing they need is for their respective oppositions to accuse them of following a leader who clamps down on civil liberties and attempts to subjugate their sovereignty for his regional vision.

Though Chavez's moves likely will backfire in the short term, they might not be a total miscalculation. It is possible Chavez is attempting to regain symbolic control of the domestic and regional agenda by acting aggressively. At home, the student protests have made headlines, and he likely felt the need to cast doubt on the idea that this is a homegrown movement. Abroad, Brazil has successfully reached out to the region via its ethanol diplomacy; stymied the Banco del Sur; criticized the RCTV closure; and is preventing Venezuela from co-opting Mercosur as a forum for Chavez's regional ambitions. These events likely convinced Chavez that he cannot rely on Brazil or Mercosur to be the seed for his vision of an integrated Latin America, and he needs to focus on further developing ALBA.

As such, Chavez is turning back to his tried-and-true method of using the United States as a scapegoat, and he is looking to his longtime allies to further his vision for Latin American integration. But he might be unpleasantly surprised to find that such actions are increasingly seen by his supporters

Venezuelan President Hugo Chavez will attempt to alter Venezuela's constitution without convoking a constituent assembly. The combination of a rising student movement in Venezuela and increasing antagonism between Chavez's government and the Roman Catholic Church could re-energize the opposition movement -- but probably is not powerful enough to challenge Chavez's plan.

Analysis

Venezuelan President Hugo Chavez has decided that his constitutional reform plan should be introduced through amendments by the sitting National Assembly rather than through the convocation of a constituent assembly. Chavez's proposed revisions include an elimination of presidential term limits, and the empowerment of new community councils, as well as unspecified changes to make Venezuela more "socialist."

This new approach to constitutional change could unwittingly galvanize a more energetic opposition movement inspired by two freshly motivated groups: university students and the Roman Catholic Church. Venezuela's opposition movement has been extremely weak and ineffective since the failed coup attempt in 2002, but this could begin to change.

Venezuela's current constitution stipulates that changes that do not modify the fundamental principles and structure of the document can be made via amendments in the National Assembly, while a more serious alteration of the constitution must occur through a constituent assembly. Chavez wants to use the National Assembly to make his reforms because the legislature is full of Chavez loyalists, since the opposition boycotted the last congressional elections. Chavez apparently is worried that if he submits to a constituent assembly, the 39 percent of voters who voted against him in last year's presidential election -- plus voters newly disenchanted by the revocation of Radio Caracas Television (RCTV)'s license -- could muster enough delegates to challenge his plan.

Even if the changes do go to the National Assembly instead of to a constituent assembly, they ultimately must be approved by majority vote in a popular referendum. If Chavez attempts to bypass this referendum process, he likely will encounter large-scale protests. If he allows the referendum to proceed, his agenda is likely to pass but the results could be closer than those of the last presidential election.

If Venezuela's student movement and the Catholic Church can consolidate, they could argue that Chavez's proposed changes are too fundamental to go through the amendment process, and that Chavez's approach to constitutional change is undemocratic. This argument is unlikely to find support in the courts, so the appeal will have to be made directly to the public. Chavez will then either have to crack down visibly on peaceful opposition groups or risk allowing them to build up strength before the referendum. Whether the government's reaction will create more sympathizers for the opposition remains to be seen. For their part, the opposition groups will demonstrate how well organized they can become and whether they can appeal to the lower classes.

Venezuela's student opposition emerged during the RCTV incident in late May and continued marching in the street for weeks. The movement mostly claimed to march in favor of freedom of the press rather than any larger ideological agenda. Douglas Barrios, a student leader from the Metropolitan University in Caracas, even delivered a prepared speech to the National Assembly on behalf of the various student groups. Chavez responded by accusing the groups of being patsies for U.S. attempts to destabilize his regime with a "soft coup."

The student groups are adopting a wider agenda, organizing demonstrations July 20-22 to protest the high crime rates in Caracas. Whether or not this approach appeals to a larger section of the population (demonstrations generally attract dozens to hundreds, and not more than 5,000 at a time), the student movement appears to be here to stay.

The Venezuelan opposition's largest challenge is attracting substantial support from Venezuela's majority poor population. The university students are accused of representing an "elite" which is out of touch with Venezuela's revolution and funded by U.S. interests. The Catholic Church, on the other hand, might have the kind of credibility necessary to break through such arguments.

Earlier this month, Venezuelan Bishops' Conference Chair Monsignor Ubaldo Santana voiced concerns about Venezuela's proposed constitutional reform. In response, Chavez called the bishops "perverts, liars and deceivers." Chavez accused the Catholic leadership of failing to represent the "revolutionary" vision of Jesus Christ to help the poor, while saying there are still many good Catholic priests out there who do represent that vision.

Chavez is implying that Catholic leaders at the local level will not be unified in opposition to his constitutional plans. He is likely correct about this, and the Catholic Church is also far less of a social power than it was in the Latin American world just two decades ago. However, if the bishops can pull together leaders who still have strong connections to their communities and link to the student groups and other opposition movements, there could be a bond strong enough to seriously challenge Chavez's plans.

Chavez is reaching a tipping point in his consolidation of power. He is no longer able to proceed without developing an antagonistic relationship toward interest groups that stand for something other than the "bourgeois elite." It is likely too late for opposition groups to stop his bid to achieve a constitution that allows him to govern indefinitely. However, as Chavez pursues his new socialist government structure, he will increasingly resort to authoritarian measures to punish and discredit opposition groups, further darkening his reputation abroad.

Finally, there is Latin America's most bombastic autocrat, Venezuelan President Hugo Chavez. We have not heard much from Chavez for several months, not because he has stopped his rhetorical entertainment but because his political grip on Venezuela has become so tight that there really is not much to talk about. The opposition is weak and divided; the populace is either scared by Chavez's AK-47-armed thugs or has been bought off by his subsidies; and the bulk of the economic elite is busy relocating to Miami.

As such, our net assessment of Venezuela has been that Chavez will continue to rule unopposed until his economic policies run the country into the ground and his support base -- which includes the aforementioned AK-47-armed thugs -- turns on him. When Chavez took office in 1999, Venezuelan oil output stood at a record 3.5 million barrels per day (bpd). Between support for stricter quotas for the Organization of Petroleum Exporting Countries, a political purge of the state oil company and subsequent malign neglect of the energy sector, the country now produces slightly less than 2.4 million bpd. Toss in oil's standard volatility and sooner or later Venezuela's finances -- along with Chavez's presidential fortunes -- are going to crash.

But something else happened Tuesday that could hasten Chavez's end: The Venezuelan president now is openly picking fights with the Catholic Church. Chavez lashed out at Cardinal Oscar Andres Rodriguez Maradiaga of Tegucigalpa, Honduras, after Maradiaga said in an interview with the Venezuelan press that Chavez "seems to think that he is a god and can trample over others."

In response, Chavez pulled out the old rhetoric he normally reserves for the Bush administration, calling the cardinal an "imperialist clown." Tensions between Chavez and the Church have been building for weeks, but this exchange made it deeply personal.

Without getting into the details of the cardinal's logic, the nature of the interview or an analysis of Chavez's personality, let us say this was not a particularly bright move. The Catholic Church is many things, but it is not geopolitically insignificant. The Church's moral authority -- to say nothing of the ability of an organization with 1 billion members to gather, disseminate and act upon intelligence -- is massive, particularly in Latin America.

Historically, when the Church has felt it necessary, it has wielded remarkable political power and contributed to regime changes the world over, including the demise of the now-fallen Soviet superpower. It is a foe that Chavez does not need. And, if push comes to shove, it is a foe he probably cannot beat.

VENEZUELA: Venezuela signed a deal with Rosoboronexport, Russia's main arms selling company, on the sidelines of the MAKS 2007 air show for the sale of 98 Ilyushin IL-114 airplanes, Izvestia reported, citing Alexander Novikov, the director of a company that produces engines for the planes. However, Rosoboronexport said in a statement that it has not signed a contract for the sale of the planes, which can be used for passengers or cargo.

This week oil experts agreed on one point: a favorable outcome of the crisis Venezuela’s state-owned oil company is going through is far from certain.

It looks as though the absence of trained technical and management staff, the lack of planning and the politicization of the business, added to widespread corruption, will push PDVSA into bankruptcy sooner rather than later.

The symptoms are already apparent: PDVSA is not meeting its production expectations, the refineries are in a calamitous state, a large number of wells have been shut down, there is a deficit of some 120 drilling rigs, and production barely reaches 3,300,000 b/d (according to inflated official figures), a far cry from the production goal of 5,800,000 b/d.

Added to this is the fact that Venezuela is apparently on the threshold of an international lawsuit with ConocoPhillips and ExxonMobil, if the clear contradictions between statements by John Lowe, ConocoPhillips’ Exploration and Production Executive Vice- president, and Energy and Oil Minister Rafael Ramírez are anything to go by.

This Wednesday Lowe stated that ConocoPhillips had agreed with the Venezuelan government that compensation for its shares in Petrozuata and Hamaca would be based on their “market value” and that negotiations were still being conducted to determine that “value.” Then, on August 30, Minister Ramírez declared that Venezuela would only pay compensation based on the “original book value.”

According to estimates by analysts with investment banks in New York, the difference between the two values is considerable. The “original book value” of the four upgraders is around $17 billion, whereas the “fair market value” would be in the order of $33 billion.

Although ExxonMobil has not said whether it has reached an agreement similar to ConocoPhillips’, it is to be assumed that it did.

ConocoPhillips and Exxon have already declared losses for the second quarter of some $5.25 billion (ConocoPhillips $4.5 billion and Exxon (Cerro Negro) $750 million). If these losses reflect the “original book value,” then the “market value” could be in the order of $10 billion, at least. Venezuela does not have that amount available and what is most likely is that Chávez will not accept paying such a high sum to oil companies of the empire.

And to complicate things still further for PDVSA, the most important of its deals with China and Brazil are apparently falling through. What is more, Chávez’ promises to build refineries all over the place are on the way to becoming empty words owing to the lack of funds, unless he sells off other assets, Citgo for example, in order to be able to make good his promises.

Unfortunately, the only things that do seem to be functioning at PDVSA are communist proselytism led by Ramírez and corruption at the highest levels, which has been extensively reported by journalists who support the regime and revealed in the scandal of the briefcase with nearly $800,000 confiscated in Buenos Aires.

RUSSIA, VENEZUELA: Weapons sales deals between Russia and Venezuela stand at $4 billion and likely will double or triple in the next few years, an official with Russian state-owned arms exporter Rosoboronexport said. The two countries are drafting deals for the sales of warships, warplanes, helicopter gunships and other weapons for the army, Interfax reported.

Until recently, Venezuela's opposition was so weak and fragmented it seemed unable to even fathom an electoral victory. But, in the early morning hours on Monday, it sealed a surprising triumph over the constitutional reform proposal of a president who, in nine years, had never lost an election. Scrambling to explain this aberration in a land where Hugo Chavez dominates the political landscape, many political observers point to the thousands of university students, who, dormant until this year, clogged the streets to protest the reform in the weeks leading up to the vote. Raul Baduel, the former defense minister and longtime ally of the president, also injected life into the opposition when he, along with the former pro-Chavez party Podemos (Spanish for "We Can"), called for people to vote "No." But the results raise another, perhaps more important, question: how much help did the opposition actually receive from the poor, Chavez's main support base?

These two items seem quite incredible. It seems quite obvious that Colombia and possibly the USA have declared an undeclared war on Hugo Chavez. I find it hard to believee that this kind of information would make it to the press without official sanction...

ORLANDO SIERRA/AFP/Getty ImagesVenezuelan President Hugo ChavezSummaryAfter Colombia’s cross-border raid into Ecuador on March 1 that resulted in the death of the Revolutionary Armed Forces of Colombia’s second-in-command, Venezuelan President Hugo Chavez warned March 2 that if Colombia launched any such action on Venezuelan soil, it would be cause for war. Chavez then closed the Venezuelan Embassy in Bogota and ordered 10 battalions to the Venezuelan-Colombian border. The Venezuelan military is no match for Colombia’s larger, better-funded and more experienced forces.

AnalysisFollowing a March 1 Colombian cross-border raid into Ecuador that resulted in the death of the No. 2 Revolutionary Armed Forces of Colombia (FARC) commander, Venezuelan President Hugo Chavez on March 2 warned Bogota against launching any similar operation on Venezuelan soil. The same day, during his weekly radio address, Chavez announced that he would be closing the Venezuelan embassy in Bogota. He added that he had asked his defense minister to send 10 battalions — including tank battalions and military aviation — to the Venezuelan-Colombian border.

Venezuela’s armored formations (with tanks that include a smattering of old French AMX and British Scorpion designs) are based on the outskirts of Caracas, but an infantry brigade is based at San Cristobal near an important border crossing, and another at Maracaibo. Some tanks appear to be regularly stationed on the border. Unless this move has been premeditated, it would likely take several days — at the very least — to get an armored unit stationed outside Caracas spun up and on the road toward the border.

This road is the one most capable of sustaining heavy logistical trains from the capital. In fact, except for the northernmost 300 miles, the border is covered by dense rainforest and does not appear to have particularly heavy transportation infrastructure. The roads from Caracas to San Cristobal and Maracaibo appear to be the path of least resistance and thus, logistically speaking, are the paths a military mobilization is likely to take.

Much of this northern sector of the border runs along a mountain ridgeline, so while there is decent road infrastructure to get there, it would literally be an uphill battle for Venezuelan forces to move across the border there, as they would be ceding the high ground to Colombia.

Further north along the coast, a major road crosses flat coastal lowlands above Maracaibo, which offers Venezuelan troops the option of attempting to cut off the majority of the low-lying La Guajira peninsula — though there does not appear to be much of value there. Beyond the La Guajira Department lies the Magdalena Department, which contains Colombia’s highest peak, the 18,000-foot Pico Cristobal Colon.

Meanwhile, there is the very serious issue that the Venezuelan military is unpracticed at the fine art of logistics and is not known for its acumen for maintaining vehicles in depot, much less those that are deployed. Stratfor is skeptical of Venezuela’s ability to project and sustain forces meaningfully beyond its borders, especially regularly organized units and the tank battalions Chavez has requested.

Colombia’s military is larger, better funded and more operationally experienced — each by a factor of 10 — than Venezuela’s. U.S. funding and the prosecution of the counternarcotics war have given Colombia one of the most noteworthy military machines in the region. In addition, Bogota’s military is well-disposed on its side of the border to counter any offensive move by Caracas. Though Venezuelan forces moving quickly might be able to achieve some short-lived localized superiority, there is little to suggest that they would be capable of consolidating that gain before Colombia’s military came down upon them.

Thus, the metrics of a Chavez on the warpath are not thus far holding up to scrutiny. But Stratfor continues to monitor the situation closely. The Venezuelan president has been losing ground domestically of late and no doubt could benefit from stirring up some nationalist sentiment.

Meanwhile, Stratfor will be watching the movement of Venezuelan troops to see whether 10 battalions are moved to reinforce the ones already on the border and, if so, how quickly. Should these reinforcements — especially armored battalions from Caracas — arrive in short order, it would suggest that Chavez’s announcement was premeditated, rather than an off-the-cuff reaction to the March 1 FARC raid.

And there is always the outlying concern that Chavez’s cultivation of relations with FARC was not because he wanted leverage over the organization for solely political purposes, but because he might attempt to use them as a militant proxy.

On the same day Colombia said it had captured a Venezuelan national guard officer carrying 40,000 AK-47 assault rifle cartridges believed to be intended for leftist guerrillas, President Hugo Chávez of Venezuela said Saturday he would withdraw a decree overhauling intelligence policies that he had made earlier that week.

The rare reversal by Mr. Chávez came amid intensifying criticism in Venezuela from human rights groups.

The capture of the Venezuelan officer in eastern Colombia could reignite tensions between the neighboring countries over Venezuela’s support for the rebel group FARC.

Colombia’s attorney general, Mario Iguarán, said Saturday that security forces had captured the national guard officer carrying cartridges that the Colombian authorities believe were intended for the FARC.

While Mr. Chávez’s government did not immediately comment on the arrest of the Venezuelan officer, who was identified as Manuel Teobaldo Agudo Escalona, the episode suggests that pressure could mount in Washington to add Venezuela to the list of countries that are state sponsors of terrorism.

Colombian officials have recently said that Venezuela tried to provide arms and financing for the Revolutionary Armed Forces of Colombia, or FARC, basing their claims on references to such dealings in archives from computers obtained in an April raid on the rebels. The United States and the European Union classify the FARC as terrorists.

Venezuela, which expresses ideological solidarity with the Marxist-inspired FARC, has said that no further proof of such assistance has emerged. But that was before Colombia announced the arrest of the Venezuelan officer, captured in Puerto Nariño in eastern Colombia with another Venezuelan citizen and two Colombians.

The type of cartridges in the possession of the four men are used in assault rifles commonly employed by the FARC, which has been active in Colombia for more than four decades. Colombia, one of the largest recipients of American counterinsurgency aid outside the Middle East, has recently killed several senior FARC commanders.

Amid festering tension with Colombia, including claims that Colombian paramilitaries were fomenting destabilization plots, President Chávez quietly unveiled his intelligence law in late May, which would have abolished the DISIP secret police and DIM military intelligence, replacing them with new intelligence and counterintelligence agencies.

But in a rare act of self-criticism on Saturday, Mr. Chávez acknowledged the ire that his intelligence overhaul had provoked among legal scholars and human rights groups, which said Mr. Chávez was attempting to introduce a police state by forcing judges to cooperate with intelligence services and criminalizing dissent.

“Where we made mistakes we must accept that and not defend the indefensible,” Mr. Chávez said at a campaign rally in Zulia State for gubernatorial and mayoral candidates from his Socialist party. “There is no dictatorship here,” he continued. “No one here is coerced into saying more than they want to say.”

Reeling from the defeat of a constitutional reform in December that would have expanded his powers, Mr. Chávez, in his 10th year in power, is facing multiple challenges as a reinvigorated opposition fields candidates in regional elections this year and Venezuela’s economic growth slows despite record oil prices.

Venezuela: The United States Turns the ScrewsStratfor Today » June 19, 2008 | 2236 GMT

EVARISTO SA/AFP/Getty ImagesVenezuelan President Hugo Chavez SummaryThe U.S. Treasury Department on June 17 accused a Venezuelan diplomat and head of the Caracas-based Shia Islamic Center of giving Hezbollah financial support. The United States, which is targeting other Venezuelan nationals suspected of involvement with Hezbollah, is working to increase the pressure on Venezuelan President Hugo Chavez, who is already weakening under the weight of domestic problems.

AnalysisThe U.S. Treasury Department on June 17 accused Ghazi Nasr al-Din, a Venezuelan diplomat and president of a Caracas-based Shia Islamic center, of giving financial assistance to Hezbollah. The United States has also targeted Fawzi Kanan and two Venezuelan-based travel agencies that he allegedly owns or controls. Although the United States has made accusations of involvement with Hezbollah before, in taking the step to target Venezuelan nationals, the United States is ramping up pressure on already-weakened Venezuelan President Hugo Chavez.

The most recent set of accusations against Chavez’s government were released by U.S.-based Venezuelan reporter Patricia Poleo in a report that gave detailed accounts of Hezbollah, al Qaeda and other Arab movements in Venezuela. The report alleged that Venezuela is hosting at least five camps in various parts of the country where Venezuelan and Lebanese Hezbollah members learn to use munitions, and that those members plan to use Venezuela as a launching point for attacks on the United States. The report is suspiciously detailed in its descriptions of alleged terrorist training activities in Venezuela’s jungles. The information would have been very hard to come by without the aid of a sophisticated intelligence agency.

Washington has long been concerned about security threats originating in Venezuela. A well-known transit point for illegal drugs and arms, Venezuela also poses a serious risk to U.S. security because of its lax visa regulations and rampant corruption. Furthermore, Venezuela has been the most significant port of entry for illegal immigrants from the Eastern Hemisphere since before Chavez took control of the country.

Although Stratfor has no direct evidence that Hezbollah is operating in Venezuela, it would not be much of a surprise. In fact, Venezuela’s close relationship with Iran makes it almost inevitable. Most of Venezuela’s “joint” programs with Iran — such as a recently announced joint bank — make little sense because, depending on the project, Venezuela and Iran lack the cash, technology and/or organic market to launch them. Both countries are exporters of oil, with very little other economic strength, so trading between the two is largely superfluous. But helping Iran by supporting Hezbollah only requires some land in the jungle and lax security with passports — two things Venezuela has in spades.

What Venezuela would get out of such a partnership is not entirely clear. A core part of Chavez’s domestic security strategy has been to develop local militias that he can call on to support him in case the Venezuelan military turns against him. But harboring terrorist training camps in one’s backyard is like painting a big bullseye on one’s country and inviting the U.S. Air Force to take their best shot. But it is possible Iran is worth the risk, whether it is able to offer money or political favors in return.

Whether or not it is true that Venezuela is helping Hezbollah, the possibility for such cooperation has existed for several years. But the timing of this asset seizure poses some interesting possibilities, as it coincides with some dramatic shifts in Chavez’s behavior. These shifts include an apparent decision to deny public support to the Revolutionary Armed Forces of Colombia (FARC) and a move to revise a key intelligence law that would have strengthened his authoritarian control over Venezuela.

Chavez’s support of the FARC has been unpopular in Venezuela; in an April poll by Venezuelan polling firm Datanalisis, more than 70 percent of Venezuelans expressed disapproval of the FARC. This fact no doubt played a large part in his decision to reverse support for the group. With support for a second terrorist organization coming to light, Chavez’s credibility will only suffer more.

At the same time, Chavez is experiencing serious challenges on other fronts.

Inflation in Venezuela is skyrocketing, in part because of monetary inflation partially driven by massive government spending. Coupled with rising global food prices, the inflation has made life measurably harder for Venezuelans (especially poor Venezuelans), and dissatisfaction with Chavez’s policies is increasing.

Furthermore, Chavez’s social programs that service his support base rely on funding from Venezuelan state-owned energy company Petroleos de Venezuela (PDVSA) — and things are not looking so good for PDVSA. Burdened with the financial responsibilities of the entire state, the company is at risk of not being able to maintain its oil production, much less increase it to meet rising fiscal needs. And all this is with oil at $130 per barrel; any price drop and Chavez immediately will have to choose who not to give subsidies to.

Demands on PDVSA will not slacken soon, either. With local elections approaching, Chavez is under pressure to bring his party — the United Socialist Party of Venezuela — under his control. Designed to unite all leftist parties in Venezuela under one banner, the party is not as united as Chavez would like it to be. The upcoming November elections have exposed deep disagreements among party members and have provoked Chavez to go so far as to kick prominent figures out of the party. The elections will test his ability to hold the country together, and Chavez will need all the help he can get from his costly social programs to secure public support.

The bottom line is that Chavez is vulnerable like never before. With food prices soaring, local elections approaching and criticism of his policies mounting, the implication that Chavez’s government is aiding a second terrorist organization is well-timed to take advantage of his already-declining popularity.

The kind of moves the United States is making to undermine Chavez’s popular support are well in line with Stratfor’s projection that outside forces — including the United States — are supporting the unity of the Venezuelan opposition. What remains to be seen is where exactly the break point is for Chavez’s supporters, and whether or not the military will support Chavez in the face of a concerted attempt by the opposition to throw a revolution.

On Sept. 11, 1990, U.S. President George H. W. Bush addressed Congress. He spoke in the wake of the end of Communism in Eastern Europe, the weakening of the Soviet Union, and the invasion of Kuwait by Saddam Hussein. He argued that a New World Order was emerging: "A hundred generations have searched for this elusive path to peace, while a thousand wars raged across the span of human endeavor, and today that new world is struggling to be born. A world quite different from the one we've known. A world where the rule of law supplants the rule of the jungle. A world in which nations recognize the shared responsibility for freedom and justice. A world where the strong respect the rights of the weak."

After every major, systemic war, there is the hope that this will be the war to end all wars. The idea driving it is simple. Wars are usually won by grand coalitions. The idea is that the coalition that won the war by working together will continue to work together to make the peace. Indeed, the idea is that the defeated will join the coalition and work with them to ensure the peace. This was the dream behind the Congress of Vienna, the League of Nations, the United Nations and, after the Cold War, NATO. The idea was that there would be no major issues that couldn't be handled by the victors, now joined with the defeated. That was the idea that drove George H. W. Bush as the Cold War was coming to its end.

Those with the dream are always disappointed. The victorious coalition breaks apart. The defeated refuse to play the role assigned to them. New powers emerge that were not part of the coalition. Anyone may have ideals and visions. The reality of the world order is that there are profound divergences of interest in a world where distrust is a natural and reasonable response to reality. In the end, ideals and visions vanish in a new round of geopolitical conflict.

The post-Cold War world, the New World Order, ended with authority on Aug. 8, 2008, when Russia and Georgia went to war. Certainly, this war was not in itself of major significance, and a very good case can be made that the New World Order actually started coming apart on Sept. 11, 2001. But it was on Aug. 8 that a nation-state, Russia, attacked another nation-state, Georgia, out of fear of the intentions of a third nation-state, the United States. This causes us to begin thinking about the Real World Order.

The global system is suffering from two imbalances. First, one nation-state, the United States, remains overwhelmingly powerful, and no combination of powers are in a position to control its behavior. We are aware of all the economic problems besetting the United States, but the reality is that the American economy is larger than the next three economies combined (Japan, Germany and China). The U.S. military controls all the world's oceans and effectively dominates space. Because of these factors, the United States remains politically powerful - not liked and perhaps not admired, but enormously powerful.

The second imbalance is within the United States itself. Its ground forces and the bulk of its logistical capability are committed to the Middle East, particularly Iraq and Afghanistan. The United States also is threatening on occasion to go to war with Iran, which would tie down most of its air power, and it is facing a destabilizing Pakistan. Therefore, there is this paradox: The United States is so powerful that, in the long run, it has created an imbalance in the global system. In the short run, however, it is so off balance that it has few, if any, military resources to deal with challenges elsewhere. That means that the United State s remains the dominant power in the long run but it cannot exercise that power in the short run. This creates a window of opportunity for other countries to act.

The outcome of the Iraq war can be seen emerging. The United States has succeeded in creating the foundations for a political settlement among the main Iraqi factions that will create a relatively stable government. In that sense, U.S. policy has succeeded. But the problem the United States has is the length of time it took to achieve this success. Had it occurred in 2003, the United States would not suffer its current imbalance. But this is 2008, more than five years after the invasion. The United States never expected a war of this duration, nor did it plan for it. In order to fight the war, it had to inject a major portion of its ground fighting capability into it. The length of the war was the problem. U.S. ground forces are either in Iraq, recovering from a tour or preparing for a deployment. What strategic reserves are available are tasked into Afghanistan. Little is left over.

As Iraq pulled in the bulk of available forces, the United States did not shift its foreign policy elsewhere. For example, it remained committed to the expansion of democracy in the former Soviet Union and the expansion of NATO, to include Ukraine and Georgia. From the fall of the former Soviet Union, the United States saw itself as having a dominant role in reshaping post-Soviet social and political orders, including influencing the emergence of democratic institutions and free markets. The United States saw this almost in the same light as it saw the democratization of Germany and Japan after World War II. Having defeated the Soviet Union, it now fell to the United States to reshape the societies of the successor states.

Through the 1990s, the successor states, particularly Russia, were inert. Undergoing painful internal upheaval - which foreigners saw as reform but which many Russians viewed as a foreign-inspired national catastrophe - Russia could not resist American and European involvement in regional and internal affairs. From the American point of view, the reshaping of the region - from the Kosovo war to the expansion of NATO to the deployment of U.S. Air Force bases to Central Asia - was simply a logical expansion of the collapse of the Soviet Union. It was a benign attempt to stabilize the region, enhance its prosperity and security and integrate it into the global system.

As Russia regained its balance from the chaos of the 1990s, it began to see the American and European presence in a less benign light. It was not clear to the Russians that the United States was trying to stabilize the region. Rather, it appeared to the Russians that the United States was trying to take advantage of Russian weakness to impose a new politico-military reality in which Russia was to be surrounded with nations controlled by the United States and its military system, NATO. In spite of the promise made by Bill Clinton that NATO would not expand into the former Soviet Union, the three Baltic states were admitted. The promise was not addressed. NATO was expanded because it could and Russia could do nothing about it.

From the Russian point of view, the strategic break point was Ukraine. When the Orange Revolution came to Ukraine, the American and European impression was that this was a spontaneous democratic rising. The Russian perception was that it was a well-financed CIA operation to foment an anti-Russian and pro-American uprising in Ukraine. When the United States quickly began discussing the inclusion of Ukraine in NATO, the Russians came to the conclusion that the United States intended to surround and crush the Russian Federation. In their view, if NATO expanded into Ukraine, the Western military alliance would place Russia in a strategically untenable position. Russia would be indefensible. The American response was that it had no intention of threatening Russia. The Russian question was returned: Then why are you trying to take control of Ukraine? What other purpose would you have? The United States dismissed these Russian concerns as absurd. The Russians, not regarding them as absurd at all, began planning on the assumption of a hostile United States.

If the United States had intended to break the Russian Federation once and for all, the time for that was in the 1990s, before Yeltsin was replaced by Putin and before 9/11. There was, however, no clear policy on this, because the United States felt it had all the time in the world. Superficially this was true, but only superficially. First, the United States did not understand that the Yeltsin years were a temporary aberration and that a new government intending to stabilize Russia was inevitable. If not Putin, it would have been someone else. Second, the United States did not appreciate that it did not control the international agenda. Sept. 11, 2001, took away American options in the former Soviet Union. No only did it need Russian help in Afghanistan, but it was going to spend the next decade tied up in the Middle East. The United States had lost its room for maneuver and therefore had run out of time.

And now we come to the key point. In spite of diminishing military options outside of the Middle East, the United States did not modify its policy in the former Soviet Union. It continued to aggressively attempt to influence countries in the region, and it became particularly committed to integrating Ukraine and Georgia into NATO, in spite of the fact that both were of overwhelming strategic interest to the Russians. Ukraine dominated Russia's southwestern flank, without any natural boundaries protecting them. Georgia was seen as a constant irritant in Chechnya as well as a barrier to Russian interests in the Caucasus.

Moving rapidly to consolidate U.S. control over these and other countries in the former Soviet Union made strategic sense. Russia was weak, divided and poorly governed. It could make no response. Continuing this policy in the 2000s, when the Russians were getting stronger, more united and better governed and while U.S. forces were no longer available, made much less sense. The United States continued to irritate the Russians without having, in the short run, the forces needed to act decisively.

The American calculation was that the Russian government would not confront American interests in the region. The Russian calculation was that it could not wait to confront these interests because the United States was concluding the Iraq war and would return to its pre-eminent position in a few short years. Therefore, it made no sense for Russia to wait and it made every sense for Russia to act as quickly as possible.

The Russians were partly influenced in their timing by the success of the American surge in Iraq. If the United States continued its policy and had force to back it up, the Russians would lose their window of opportunity. Moreover, the Russians had an additional lever for use on the Americans: Iran.

The United States had been playing a complex game with Iran for years, threatening to attack while trying to negotiate. The Americans needed the Russians. Sanctions against Iran would have no meaning if the Russians did not participate, and the United States did not want Russia selling advance air defense systems to Iran. (Such systems, which American analysts had warned were quite capable, were not present in Syria on Sept. 6, 2007, when the Israelis struck a nuclear facility there.) As the United States re-evaluates the Russian military, it does not want to be surprised by Russian technology. Therefore, the more aggressive the United States becomes toward Russia, the greater the difficulties it will have in Iran. This further encouraged the Russians to act sooner rather than later.

The Russians have now proven two things. First, contrary to the reality of the 1990s, they can execute a competent military operation. Second, contrary to regional perception, the United States cannot intervene. The Russian message was directed against Ukraine most of all, but the Baltics, Central Asia and Belarus are all listening. The Russians will not act precipitously. They expect all of these countries to adjust their foreign policies away from the United States and toward Russia. They are looking to see if the lesson is absorbed. At first, there will be mighty speeches and resistance. But the reality on the ground is the reality on the ground.

We would expect the Russians to get traction. But if they don't, the Russians are aware that they are, in the long run, much weaker than the Americans, and that they will retain their regional position of strength only while the United States is off balance in Iraq. If the lesson isn't absorbed, the Russians are capable of more direct action, and they will not let this chance slip away. This is their chance to redefine their sphere of influence. They will not get another.

The other country that is watching and thinking is Iran. Iran had accepted the idea that it had lost the chance to dominate Iraq. It had also accepted the idea that it would have to bargain away its nuclear capability or lose it. The Iranians are now wondering if this is still true and are undoubtedly pinging the Russians about the situation. Meanwhile, the Russians are waiting for the Americans to calm down and get serious. If the Americans plan to take meaningful action against them, they will respond in Iran. But the Americans have no meaningful actions they can take; they need to get out of Iraq and they need help against Iran. The quid pro quo here is obvious. The United States acquiesces to Russian actions (which it can't do anything about), while the Russians cooperate with the United States against Iran getting nuclear weapons (something Russia does not want to see).

One of the interesting concepts of the New World Order was that all serious countries would want to participate in it and that the only threat would come from rogue states and nonstate actors such as North Korea and al Qaeda. Serious analysts argued that conflict between nation-states would not be important in the 21st century. There will certainly be rogue states and nonstate actors, but the 21st century will be no different than any other century. On Aug. 8, the Russians invited us all to the Real World Order.